fcn-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-14875

 

FTI CONSULTING, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

52-1261113

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

1101 K Street NW,

Washington, D.C.

20005

(Address of Principal Executive Offices)

(Zip Code)

(202) 312-9100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at July 20, 2017

Common stock, par value $0.01 per share

39,542,651

 

 

 

 


 

FTI CONSULTING, INC. AND SUBSIDIARIES

INDEX

 

 

 

Page 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Consolidated Balance Sheets—June 30, 2017 and December 31, 2016

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income—Three and Six Months Ended June 30, 2017 and 2016

4

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity—Six Months Ended June 30, 2017

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2017 and 2016

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

 

 

 

Item 4.

Controls and Procedures

38

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

Item 1A.

Risk Factors

39

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 3.

Defaults Upon Senior Securities

51

 

 

 

Item 4.

Mine Safety Disclosures

51

 

 

 

Item 5.

Other Information

51

 

 

 

Item 6.

Exhibits

52

 

 

SIGNATURE

54

 

 

2


 

PART I—FINANCIAL INFORMATION

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

Item 1.

Financial Statements

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,511

 

 

$

216,158

 

Accounts receivable:

 

 

 

 

 

 

 

 

Billed receivables

 

 

399,100

 

 

 

365,385

 

Unbilled receivables

 

 

345,228

 

 

 

288,331

 

Allowance for doubtful accounts and unbilled services

 

 

(191,113

)

 

 

(178,819

)

Accounts receivable, net

 

 

553,215

 

 

 

474,897

 

Current portion of notes receivable

 

 

27,126

 

 

 

31,864

 

Prepaid expenses and other current assets

 

 

58,937

 

 

 

60,252

 

Total current assets

 

 

777,789

 

 

 

783,171

 

Property and equipment, net of accumulated depreciation

 

 

60,280

 

 

 

61,856

 

Goodwill

 

 

1,187,664

 

 

 

1,180,001

 

Other intangible assets, net of amortization

 

 

48,213

 

 

 

52,120

 

Notes receivable, net of current portion

 

 

108,692

 

 

 

104,524

 

Other assets

 

 

42,155

 

 

 

43,696

 

Total assets

 

$

2,224,793

 

 

$

2,225,368

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

85,403

 

 

$

87,320

 

Accrued compensation

 

 

191,683

 

 

 

261,500

 

Billings in excess of services provided

 

 

37,652

 

 

 

29,635

 

Total current liabilities

 

 

314,738

 

 

 

378,455

 

Long-term debt, net

 

 

480,906

 

 

 

365,528

 

Deferred income taxes

 

 

175,683

 

 

 

173,799

 

Other liabilities

 

 

114,288

 

 

 

100,228

 

Total liabilities

 

 

1,085,615

 

 

 

1,018,010

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; shares authorized — 5,000; none

   outstanding

 

 

 

 

 

 

Common stock, $0.01 par value; shares authorized — 75,000;

   shares issued and outstanding —  39,527 (2017) and 42,037 (2016)

 

 

395

 

 

 

420

 

Additional paid-in capital

 

 

325,446

 

 

 

416,816

 

Retained earnings

 

 

946,672

 

 

 

941,001

 

Accumulated other comprehensive loss

 

 

(133,335

)

 

 

(150,879

)

Total stockholders' equity

 

 

1,139,178

 

 

 

1,207,358

 

Total liabilities and stockholders' equity

 

$

2,224,793

 

 

$

2,225,368

 

 

See accompanying notes to condensed consolidated financial statements

 

3


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

$

444,715

 

 

$

460,147

 

 

$

891,059

 

 

$

930,432

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of revenues

 

 

304,071

 

 

 

303,194

 

 

 

613,143

 

 

 

608,830

 

Selling, general and administrative expenses

 

 

107,342

 

 

 

108,245

 

 

 

214,637

 

 

 

211,854

 

Special charges

 

 

30,074

 

 

 

1,750

 

 

 

30,074

 

 

 

6,811

 

Acquisition-related contingent consideration

 

 

777

 

 

 

206

 

 

 

1,172

 

 

 

1,340

 

Amortization of other intangible assets

 

 

2,422

 

 

 

2,590

 

 

 

4,915

 

 

 

5,196

 

 

 

 

444,686

 

 

 

415,985

 

 

 

863,941

 

 

 

834,031

 

Operating income

 

 

29

 

 

 

44,162

 

 

 

27,118

 

 

 

96,401

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other

 

 

1,592

 

 

 

4,125

 

 

 

2,197

 

 

 

6,682

 

Interest expense

 

 

(6,250

)

 

 

(6,303

)

 

 

(12,051

)

 

 

(12,532

)

 

 

 

(4,658

)

 

 

(2,178

)

 

 

(9,854

)

 

 

(5,850

)

Income (loss) before income tax provision

 

 

(4,629

)

 

 

41,984

 

 

 

17,264

 

 

 

90,551

 

Income tax provision

 

 

527

 

 

 

15,437

 

 

 

8,404

 

 

 

33,823

 

Net income (loss)

 

$

(5,156

)

 

$

26,547

 

 

$

8,860

 

 

$

56,728

 

Earnings (loss) per common share — basic

 

$

(0.13

)

 

$

0.65

 

 

$

0.22

 

 

$

1.40

 

Earnings (loss) per common share — diluted

 

$

(0.13

)

 

$

0.64

 

 

$

0.22

 

 

$

1.37

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense of $0

 

$

10,174

 

 

$

(18,809

)

 

$

17,544

 

 

$

(19,167

)

Total other comprehensive income (loss), net of tax

 

 

10,174

 

 

 

(18,809

)

 

 

17,544

 

 

 

(19,167

)

Comprehensive income

 

$

5,018

 

 

$

7,738

 

 

$

26,404

 

 

$

37,561

 

 

See accompanying notes to condensed consolidated financial statements

 

 

4


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Total

 

Balance at December 31, 2016

 

 

42,037

 

 

$

420

 

 

$

416,816

 

 

$

941,001

 

 

$

(150,879

)

 

$

1,207,358

 

Net income

 

 

 

 

$

 

 

$

 

 

$

8,860

 

 

$

 

 

$

8,860

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,544

 

 

 

17,544

 

Issuance of common stock in connection with:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

55

 

 

 

1

 

 

 

1,909

 

 

 

 

 

 

 

 

 

1,910

 

Restricted share grants, less net settled shares

   of 56

 

 

202

 

 

 

2

 

 

 

(2,300

)

 

 

 

 

 

 

 

 

(2,298

)

Stock units issued under incentive compensation

   plan

 

 

 

 

 

 

 

 

1,547

 

 

 

 

 

 

 

 

 

1,547

 

Purchase and retirement of common stock

 

 

(2,767

)

 

 

(28

)

 

 

(102,485

)

 

 

 

 

 

 

 

 

(102,513

)

Cumulative effect due to adoption of new accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

(3,189

)

 

 

 

 

 

(3,189

)

Share-based compensation

 

 

 

 

 

 

 

 

9,959

 

 

 

 

 

 

 

 

 

9,959

 

Balance at June 30, 2017

 

 

39,527

 

 

$

395

 

 

$

325,446

 

 

$

946,672

 

 

$

(133,335

)

 

$

1,139,178

 

 

See accompanying notes to condensed consolidated financial statements

 

5


 

FTI Consulting, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

Operating activities

 

2017

 

 

2016

 

Net income

 

$

8,860

 

 

$

56,728

 

Adjustments to reconcile net income to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16,298

 

 

 

16,049

 

Amortization and impairment of other intangible assets

 

 

4,915

 

 

 

5,196

 

Acquisition-related contingent consideration

 

 

1,172

 

 

 

1,340

 

Provision for doubtful accounts

 

 

5,971

 

 

 

4,344

 

Non-cash share-based compensation

 

 

9,959

 

 

 

9,667

 

Non-cash interest expense

 

 

992

 

 

 

992

 

Other

 

 

242

 

 

 

(639

)

Changes in operating assets and liabilities, net of effects from

   acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, billed and unbilled

 

 

(78,100

)

 

 

(57,501

)

Notes receivable

 

 

2,241

 

 

 

(4,640

)

Prepaid expenses and other assets

 

 

947

 

 

 

(943

)

Accounts payable, accrued expenses and other

 

 

(1,887

)

 

 

1,932

 

Income taxes

 

 

3,087

 

 

 

29,329

 

Accrued compensation

 

 

(64,531

)

 

 

(28,518

)

Billings in excess of services provided

 

 

7,634

 

 

 

7,297

 

Net cash provided by (used in) operating activities

 

 

(82,200

)

 

 

40,633

 

Investing activities

 

 

 

 

 

 

 

 

Payments for acquisition of businesses, net of cash received

 

 

 

 

 

(56

)

Purchases of property and equipment

 

 

(13,127

)

 

 

(11,983

)

Other

 

 

72

 

 

 

96

 

Net cash used in investing activities

 

 

(13,055

)

 

 

(11,943

)

Financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving line of credit, net

 

 

115,000

 

 

 

 

Deposits

 

 

3,262

 

 

 

2,557

 

Purchase and retirement of common stock

 

 

(102,513

)

 

 

(2,903

)

Net issuance of common stock under equity compensation plans

 

 

(500

)

 

 

9,353

 

Other

 

 

(79

)

 

 

(154

)

Net cash provided by financing activities

 

 

15,170

 

 

 

8,853

 

Effect of exchange rate changes on cash and cash equivalents

 

 

2,438

 

 

 

(4,638

)

Net increase (decrease) in cash and cash equivalents

 

 

(77,647

)

 

 

32,905

 

Cash and cash equivalents, beginning of period

 

 

216,158

 

 

 

149,760

 

Cash and cash equivalents, end of period

 

$

138,511

 

 

$

182,665

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

14,903

 

 

$

11,242

 

Cash paid for income taxes, net of refunds

 

$

5,336

 

 

$

4,493

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of stock units under incentive compensation plans

 

$

1,547

 

 

$

1,842

 

 

See accompanying notes to condensed consolidated financial statements

 

 

6


 

FTI Consulting, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollar and share amounts in tables in thousands, except per share data)

(Unaudited)

 

1. Basis of Presentation and Significant Accounting Policies

The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our,” or “FTI Consulting”), presented herein, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

 

 

2. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share adjusts basic earnings (loss) per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted shares, each using the treasury stock method.

Due to a net loss applicable to common stockholders for the three months ended June 30, 2017, we excluded 377,389 potentially dilutive securities from the computation as their effect would be anti-dilutive.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator — basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(5,156

)

 

$

26,547

 

 

$

8,860

 

 

$

56,728

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

   outstanding — basic

 

 

39,555

 

 

 

40,820

 

 

 

40,039

 

 

 

40,663

 

Effect of dilutive stock options

 

 

 

 

 

316

 

 

 

129

 

 

 

223

 

Effect of dilutive restricted shares

 

 

 

 

 

463

 

 

 

334

 

 

 

487

 

Weighted average number of common shares

   outstanding — diluted

 

 

39,555

 

 

 

41,599

 

 

 

40,502

 

 

 

41,373

 

Earnings (loss) per common share — basic

 

$

(0.13

)

 

$

0.65

 

 

$

0.22

 

 

$

1.40

 

Earnings (loss) per common share — diluted

 

$

(0.13

)

 

$

0.64

 

 

$

0.22

 

 

$

1.37

 

Antidilutive stock options and restricted shares

 

 

1,947

 

 

 

1,374

 

 

 

1,469

 

 

 

2,016

 

 

 

3. New Accounting Standards

 

Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718, including the accounting for forfeitures, employer tax withholding on share-based compensation and income tax consequences, and clarifies the statement of cash flows presentation for certain components of share-based awards, all of which are intended to simplify various aspects of the accounting for share-based compensation. We adopted this standard as of January 1, 2017, and since then recorded the excess benefits realized from stock compensation transactions in the Condensed Consolidated Statement of Comprehensive Income. Additionally, we elected to recognize forfeiture expense as forfeitures occur, rather than estimating forfeitures based on historical data.

 

7


 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which removes the prohibition against immediate recognition of current and deferred income tax effects on intra-entity transfers of assets other than inventory. We elected to early adopt this standard as of January 1, 2017, and recorded a $3.2 million cumulative effect adjustment to the beginning balance of retained earnings on January 1, 2017 which resulted in a net impact of increasing deferred tax assets by $2.6 million and decreasing a deferred tax charge in other assets by $5.8 million related to a prior period intra-entity transfer of intellectual property.

 

Accounting Standards Not Yet Adopted

 

In January 2017, the FASB issued ASU 2017-04: Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard requires entities to measure goodwill impairment using the difference between the carrying amount and the fair value of the reporting unit, instead of performing a hypothetical purchase price allocation. This guidance is effective beginning January 1, 2020, although early adoption is permitted. The adoption of this guidance would only impact the measurement of a future goodwill impairment to the extent applicable.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing lease guidance. Under this ASU, we will be required to record right-of-use assets and corresponding lease liabilities on the balance sheet. This guidance is effective beginning January 1, 2019. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We have not yet determined the impact that the adoption of this guidance will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this ASU and subsequently issued amendments, revenues are recognized at the time when goods or services are transferred to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. We believe that the adoption of this standard will impact engagements that contain variable fee arrangements, including those in which we earn a completion fee when and if certain predefined outcomes occur, and certain engagements with fixed-fees that have multiple performance obligations. We expect to recognize revenue under certain success fee arrangements earlier upon adoption of this standard than we do under current guidance. We will adopt this standard using the modified retrospective method effective January 1, 2018.

 

 

4. Special Charges

During the three and six months ended June 30, 2017, we recorded a special charge of $30.1 million. The charge includes the impact of certain targeted reductions in areas of each segment where we needed to re-align our workforce with current business demand. In addition, cost cutting actions were taken in certain corporate departments where we were able to streamline support activities and reduce our real estate costs. $37.6 million of the charge will be paid in cash. The total charge is net of a $7.5 million non-cash reduction to expense primarily for the reversal of a deferred rent liability. The special charge includes the following components:

 

$16.1 million of employee severance and other employee related costs associated with the reduction in workforce of 201 employees in our segments and certain corporate departments. All of these amounts will be paid in cash;

 

$12.4 million of exit costs associated with the curtailment of our lease on our executive office in Washington, D.C. $20.5 million of the charge will be paid in cash. The exit costs include an $8.1 million non-cash reduction to expense primarily for the reversal of a deferred rent liability; and

 

$1.6 million of other expenses, including costs related to disposing or closing several small international offices, of which $0.6 million was a non-cash expense.

During the three months ended June 30, 2016, we recorded a special charge of $1.7 million related to the termination of 19 employees in the health solutions practice of our Forensic and Litigation Consulting segment. The termination actions resulted from the elimination of certain specialized offerings which no longer support the strategic focus of this practice. The special charges consisted of salary continuance and other contractual employee-related costs, net of the reversal of accelerated expense of a forgivable loan.

During the six months ended June 30, 2016, we recorded a special charge of $6.8 million related to the employee terminations in the health solutions practice of our Forensic and Litigation Consulting segment as described above, and special charges recorded during the three months ended March 31, 2016 related to employee terminations in our Technology segment.  

8


 

The following table details the special charges by segment for the three and six months ended June 30, 2017 and 2016:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Special Charges by Segment

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Corporate Finance & Restructuring

 

$

3,049

 

 

$

 

 

$

3,049

 

 

$

 

Forensic and Litigation Consulting

 

 

10,445

 

 

 

1,750

 

 

 

10,445

 

 

 

1,750

 

Economic Consulting

 

 

5,910

 

 

 

 

 

 

5,910

 

 

 

 

Technology

 

 

3,827

 

 

 

 

 

 

3,827

 

 

 

5,061

 

Strategic Communications

 

 

3,599

 

 

 

 

 

 

3,599

 

 

 

 

 

 

 

26,830

 

 

 

1,750

 

 

 

26,830

 

 

 

6,811

 

Unallocated Corporate

 

 

3,244

 

 

 

 

 

 

3,244

 

 

 

 

Total

 

$

30,074

 

 

$

1,750

 

 

$

30,074

 

 

$

6,811

 

Activity related to the liability for the special charges for the six months ended June 30, 2017 is as follows:

 

 

 

Employee

 

 

Lease

 

 

 

 

 

 

 

 

 

 

 

Termination

 

 

Termination

 

 

Other

 

 

 

 

 

 

 

Costs

 

 

Costs

 

 

Costs

 

 

Total

 

Balance at December 31, 2016

 

$

8,225

 

 

$

3,335

 

 

$

 

 

$

11,560

 

Additions

 

 

15,980

 

 

 

19,985

 

 

 

570

 

 

 

36,535

 

Payments

 

 

(7,030

)

 

 

(312

)

 

 

 

 

 

(7,342

)

Foreign currency translation adjustment and other

 

 

9

 

 

 

(19

)

 

 

7

 

 

 

(3

)

Balance at June 30, 2017(1)

 

$

17,184

 

 

$

22,989

 

 

$

577

 

 

$

40,750

 

    

(1)

Of the $40.8 million remaining liability for the special charges, $16.9 million is expected to be paid in the remainder of 2017, $10.5 million is expected to be paid in 2018, $4.9 million is expected to be paid in 2019, $4.1 million is expected to be paid in 2020 and the remaining balance of $4.4 million is expected to be paid from 2021 to 2025.

 

 

5. Allowance for Doubtful Accounts and Unbilled Services

We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenues when there are changes in estimates of fee reductions that may be imposed by bankruptcy courts and other regulatory institutions for both billed and unbilled receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income and totaled $2.4 million and $6.0 million for the three and six months ended June 30, 2017, respectively, and $3.9 million and $4.3 million for the three and six months ended June 30, 2016, respectively.

 

 

6. Research and Development Costs

Research and development costs related to software development totaled $4.3 million and $8.5 million for the three and six months ended June 30, 2017, respectively, and $4.5 million and $8.5 million for the three and six months ended June 30, 2016 respectively. Research and development costs are included in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income.

 

 

7. Financial Instruments

We consider the recorded value of certain financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2017 and December 31, 2016, based on the short-term nature of the assets and liabilities. The fair value of our total debt at June 30, 2017 was $494.8 million compared to a carrying value of $485.0 million. At December 31, 2016, the fair value of our total debt was $382.8 million compared to a carrying value of $370.0 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 6% Senior Notes Due 2022 (“2022 Notes”). The fair value of our borrowings on our $550.0 million senior secured bank revolving credit facility (“Senior Bank Credit Facility”) approximates the carrying amount. The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets.

 

 

9


 

8. Goodwill and Other Intangible Assets

Goodwill

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:  

 

 

 

Corporate

 

 

Forensic and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance &

 

 

Litigation

 

 

Economic

 

 

 

 

 

 

Strategic

 

 

 

 

 

 

 

Restructuring

 

 

Consulting

 

 

Consulting

 

 

Technology

 

 

Communications

 

 

Total

 

Balance at December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

440,666

 

 

$

230,544

 

 

$

268,209

 

 

$

117,607

 

 

$

317,114

 

 

$

1,374,140

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at December 31, 2016

 

 

440,666

 

 

 

230,544

 

 

 

268,209

 

 

 

117,607

 

 

 

122,975

 

 

 

1,180,001

 

Foreign currency translation adjustment and

   other

 

 

1,500

 

 

 

1,817

 

 

 

454

 

 

 

74

 

 

 

3,818

 

 

 

7,663

 

Balance at June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

442,166

 

 

 

232,361

 

 

 

268,663

 

 

 

117,681

 

 

 

320,932

 

 

 

1,381,803

 

Accumulated goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(194,139

)

 

 

(194,139

)

Goodwill, net at June 30, 2017

 

$

442,166

 

 

$

232,361

 

 

$

268,663

 

 

$

117,681

 

 

$

126,793

 

 

$

1,187,664

 

 

Other Intangible Assets

Other intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $2.4 million and $4.9 million for the three and six months ended June 30, 2017, respectively, and $2.6 million and $5.2 million for the three and six months ended June 30, 2016, respectively.

We estimate our future amortization expense for our intangible assets with finite lives to be as follows:

 

Year

 

As of June 30, 2017(1)

 

2017 (remaining)

 

$

4,724

 

2018

 

 

8,087

 

2019

 

 

7,434

 

2020

 

 

7,272

 

2021

 

 

6,686

 

Thereafter

 

 

8,409

 

 

 

$

42,612

 

 

(1)

Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes.

 

 

9. Long-Term Debt

The components of long-term debt obligations are presented in the table below:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

2022 Notes

 

$

300,000

 

 

$

300,000

 

Senior Bank Credit Facility

 

 

185,000

 

 

 

70,000

 

Total debt

 

 

485,000

 

 

 

370,000

 

Less: deferred debt issue costs

 

 

(4,094

)

 

 

(4,472

)

Long-term debt, net

 

$

480,906

 

 

$

365,528

 

 

The Company has classified the borrowings under the Company’s Senior Bank Credit Facility as long-term debt in the accompanying Condensed Consolidated Balance Sheets as amounts due under the credit agreement entered into as of June 26, 2015, which expires on June 26, 2020, are not contractually required or expected to be liquidated for more than one year from the applicable balance sheet date. Additionally, $0.7 million of the borrowing limit was utilized for letters of credit as of June 30, 2017.

 

10


 

 

10. Commitments and Contingencies

We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We do not believe any settlement or judgment relating to any pending legal action would materially affect our financial position or results of operations.

 

 

11. Share-Based Compensation

During the six months ended June 30, 2017, we granted 203,145 restricted stock awards, stock options exercisable for up to 130,650 shares, 53,175 restricted stock units and 100,052 performance-based restricted stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the six months ended June 30, 2017, stock options exercisable for up to 59,794 shares and 9,491 shares of restricted stock awards were forfeited prior to the completion of the vesting requirements.

Total share-based compensation expense, net of forfeitures, for the three months and six months ended June 30, 2017 and 2016 is detailed in the following table:  

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Income Statement Classification

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Direct cost of revenues

 

$

1,183